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        Retail stocks: Optimism and Caution in the holiday season
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        Black Friday Data: Strong Online Sales, Steady Consumer Spending Outlook

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        Carter West joined discussion · 11/27/2023 18:12
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        How did "Black Friday" perform this year?
        According to a report from Adobe Analytics, online shopping during this year's Black Friday increased by 7.5% YoY, reaching a new high of $9.8 billion, which is better than Adobe's October prediction of $9.6 billion (up 5.7% YoY).
        However, according to another report from Mastercard, the sales growth rate of this year's Black Friday increased by 2.8% compared to last year, with online transactions growing by 8.5% and in-store transactions only increasing by 1.1%. The number of visitors on Black Friday increased by 4.6% YoY, indicating a turning point for retailers as average in-store traffic this year decreased by 2.4%.
        Black Friday Data: Strong Online Sales, Steady Consumer Spending Outlook
        Overall, although the current data has good and bad news, one conclusion is clear: online consumption, which accounts for about one-fifth of retail sales, has performed well this year, better than market expectations. One explanation is that the habits formed after the epidemic, such as working from home and remote work, have promoted the penetration rate of online shopping, leading to structural changes in American consumers' buying behavior.
        Data shows that monthly online retail sales in the United States have risen from over $60 billion in 2019 to $118 billion in 2023, and its proportion of total retail sales has risen from 14.3% to 19.3%. In addition, online shopping provides consumers with more transparency and choice, allowing them to compare prices more easily and choose discounted goods, which have become popular in the current high inflation environment.
        What are the favorable and unfavorable factors that will support or suppress consumption?
        The driving factors of consumption are steady employment and income. This year, the US stock market has performed well, and house prices have continued to rise. Although income from government payments has declined, residents' wage income remains stable, with a three-month annualized growth rate of around 5%.
        The unfavorable factors affecting consumption are student loan repayment and rising credit card interest rates. With the Federal Reserve raising interest rates significantly, the average credit card interest rate in US commercial banks has risen sharply to 21.2%, and the market is concerned that under such high-interest rates, the default rate of consumers will increase and drag down consumption.
        I believe that the impact of these two factors may be limited. First, student loan repayments began in October, but the data so far has not shown significant effects. With steady employment and income, repaying loans of $200-300 per month is still affordable. Second, although credit card interest rates have risen, the credit card default rate is still only 2.8%, which is historically low. From the perspective of overdue and default debt in the household sector, the proportion of debt in arrears and default is less than 4% of total debt, also the lowest level in the past twenty years.
        Therefore, US consumer spending will remain steady in the short term. Although the consumption growth rate is expected to slow down next year, if there are no additional external shocks, the slowdown in consumption may be gradual.
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